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Re: Production Costing

AVANZOSC, S.L, Ana Juaristi Olalde
- 08/29/2014 16:37:35
Again.. answering directly on your emails... I think we are speaking about different things or I don't really understand your aproach/conclusions. If I was thinking like that, I would not collect projects working hours, nor CRM history/activity, nor anything but I would just use a very cheap and simple accounting software!!! :)
Collecting as much data as you can, not only to know real or stimated cost but only just to know what's happening and taking decisions is the main point for use an ERP or even a "social ERP" ;P

Let me explain a little bit my point.

2014-08-28 21:04 GMT+02:00 Ray Carnes - Implementation Strategy <>:



+ 100


My idea actually came from a customer after they asked a bunch of CPA’s for large American companies - none of them used Odoo at all. These were from the CFO’s of companies that have spent HUNDREDS OF MILLIONS on enterprise automation (per company).


They all told my customer many stories of the efforts to create and implement systems (and processes) to collect the information required to do accurate costing.  They all explained that even when this information was collected in real-time, and even when the processes were adhered to (not a small feat by the way) it was ALWAYS subject to (best case) an audit or (worst case) a complete adjustment/correction.  The algorithms could never account for EVERYTHING that would change costs – they could only ever account for MOST THINGS that would change costs.  They all modelled the production floor, but never reflected it with 100% accuracy 100% of the time.


If you have to spend money customizing Odoo to collect real-time costs AND make it smart enough to react to changes in how these costs vary AND increase the work a user has to do to keep tracking of everything AND adjust it anyway because the algorithm can’t react to the real world, then why not just save everyone the trouble (developers, users, accountants, auditors) and do a journal entry once a month!   

OK... Let me Know HOW accountants can make this journal entry without having real time information on system. Just trying to see if it rains or there is sunshine? I don't think so. Trying to register a totally subjective journal entry once a month... it doesn't seem really a good idea. 



The term often used by another one of my customers is “Is the juice worth the squeeze - would you spend $100 in time and materials to get a single glass of orange juice??

Would you spend 100 times a single $ trying to imagine WHY the orange juice can not be drunk first 99 times? Would you spend $100 analyzing WHY your orange juice is not good to use? would you expend 100$ in an orange juice so good that you could sell for 120$ * 100 times? 
World is not always so simple and less if you are speaking about manufacturing and complex proccesses. 


(I was VERY disappointed by this answer because I was looking forward to the project and the money it would bring it, but I couldn’t disagree it was the right answer).

I totally disagree, it's not the right answer. 


I’m not saying there aren’t cases where it is worthwhile, I’m just saying I don’t know of ANY.

I could give you several examples. Better having "some" not so exact information but near to reallity that having no information. 



From: David Arnold []
Sent: Thursday, August 28, 2014 9:58 AM

To: Community
Subject: Re: Production Costing




Using analytical accounts would be a "media break" in terms of concepts.

Why? What's the problem? 

Standard costing (estimated) does not need any temporal accounts, nor does actual costing.

How do you calculate without using tools to calculate.  


When we talk about this distincion (standard /actual) we only talk about direct labor costs and machinery depreciation, right? (Because raw materials already have built in actual costing in the Wharehous Application at very low marginal cost) All other overhead costs are also not of direct concern, as they probably are not a linear function of the cost driver (e.g. time), so they need some more advanced allocation. The most feasible way so far seems to me, what Ray suggested: individually on every BOM with phantom products.

Let's take as example project costs (not project sale/invoice price but only project cost) 
How do you set your resource hour/cost? Do you use financials, do you use intuition, do you use any spreadsheet or something? I don't mind HOW you set that price but once it's set, it's done. 
Include what you want on it, payroll, time, extra payments, fixed structural costs... etc. Any company would have his own formula and I'm noone to say how they want to calculate it, be using pased years odoo/openerp financial information, be another world/system information. It's not my problem if they don't ask me to make a proccess to calculate it and they pay for it. That's all.
So... Take as premise that you fix resources/time unit cost for any resource in any way. It's done.

Once this concept is set... let's translate to manufacturing resources/machines. It's the same. 
Now.. collect data:
Stimated: before launching the order you have got resource/time cost for any resource working on MO, you also have got materials stimated cost, and reflect it or not in analytics... It's done. But... if you reflect on each MO, you will have the historical stimated cost change for any manufacturing material, if you don't reflect you will only have 1 single cost/view for this product. If you say, i can obtain it from inventory... what happens if you never produced this product? how do you know how much is going to cost it? if you reflect in analytics you can have even if you never launch really the order. Just confirming one "template" order or something like that.  

Real: Collect real consumed materials (wich standar, medium.. etc) cost that is registered on system by now. Collect really consumed materials. 
         Collect real dedicated time to MO by resources, apply the cost/time unit rate... 
         it's all done

Exceptions: Supose you need using more materials, change materials, you are breaking your final products related to an issue on production... collect all costs against the order, use this data or not to calculate medium/standar final product cost.

Automate all this actions, as exactly as possible when it's possible to automate. Try to fix manually what is not possible to automate. 

Now... About obtaining this famous account journal entry, let's analyze what happened with that product where the real cost desviation is enormous against the stimated one. Let's see that Operation3 machine cost on that proccess is having too many issues so it needs preventive  revision, lets see that worker 73 is dedicating doble time than stimated for one operation, let's see that operation 4 in a proccess is always late and machine is stopped too many times last months.
All this information affecting to production cost can be collected and considered not only for accountants if needed but also for production managers, product ingeniers, company board and so on so... solve problems, improve processes and probably next year you could put focus and save costs, adjusting stimated cost to be less that the year before. 
Please don't say that it's better not complexing workers/people work and just "don't collect" data to make life easier. This is a sentence used by users too much often.

And yes, analytics can reflect all this. Since we have got quantity, time unit, resource that created the entry, MO/operation, analytic journal to categorize and tree structure, data when it happened so... it's not only about cost. It's about what is happening on your production lines. 



So the (my) question simply is, how to allocate ressource consumption into the valuation account, right? Of course you then might need advanced and statistical reporting on that to gain some interesting information, but the basic remains: how to allocate ressource consumption to the product or how to transfer P&L values (wages, depreciation) onto the Balance Sheet (inventory).


Because the scope of cost (like defined above) does usually not have great volatility and the cost of data collection when doing actual costing is high, I challenge the idea that there are many use cases where you need online-accuracy (by live measurement) - we are not talking about raw materials, where this can already by now (V8) be achieved, right?  If you need that accuracy, this is IMO very fine for a very custom development, not a general module.


So remains the case where you regularly check ex post your estimates (values that you find on your P&L and have to distribute on resources available time units). First the question is: of what consists this case? At the end, this consists in variance of efficiency which reflects the various time consumptions of specific resources for the same task. This actual (!) time registration, I've seen on V8 (although it was buggy). What I've not seen is the bridging concept which simply allocates to any unit of time (machinery/labor hour, or minute, or second) per resource a monetary unit out of the depreciation account.


Under consumption just remains on the P&L, this is fine as it is not a real attributable direct cost when a worker does a nap in the sun. You don't want to have that included into your production cost's on this first level when you want to know your costs at efficient production, you want to include maybe later. See Ray's approach for allocation of those overheads. 


Over consumption only can occur if it is unexpected, right? If it is expected you will have it included on the period's cost beforehand with high confidentiality (as there is little to no variance to planned values). It remains an issue only when the debiting of the P&L account does not proportionally or over proportionally grow with the credited consumed values. For wages this is not the case, as you will pay extra hours or the same or higher than normal hours. If it's expected it just enters the average labour unit cost. In some countries the depreciation unit of time of machinery is in such detail as hours or minutes for example, in others it's monthly. So there, indeed you can overuse, so you will have a debit Salado on your P&L expense account. that's not sane, right? So this is basically the only case where readjustment is needed. and it is no due to false registration of actual consumption but it is an error in the available units to consume. Your products are valuated right, because you normally applied an average depreciation value per time unit, what is not right is the depreciation value. You can no adjust for this by increasing the depreciation of this period or by reducing the inventory valuation (you probably would not do that on the product, because the product is right!) so you rather would do that in a summary way.


To conclude, I think it is obvious that this corrections can be periodically done by an accountant and in a summary way (no real pain-need for automation).


So I suggest, we CoA enable the resource concept, and that's it. There is no need for temporary calculation or storing or anything. If you have it estimated, your just living with an error, you'll probably comment on in your financial statement. If you use actual and have the data collection capabilities, then you might just register the times automatically instead of manually (as it is possible right now). If you need to adjust, for unexpected extra production, your accounting department is probably aware of, and can make the summary adjustments.


Maybe someone can explain to me, the reason why to play this simple accounting entries on analytical accounts?


So, now if you really need a second perspective of this processes, in other words an alternative view, we can parallel the structure on analytic accounts and there you can define different aggregation, different levels of detail, etc. This is what analytics are for.


It seems so obvious and logic to me, that I start do doubt my paradigms, because I do not understand, why it should be done more complicated on analytics.


So I repeat: Maybe someone can explain to me, the reason why to play these simple accounting entries on analytical accounts? Or did I badly missed something? (Like the "outch" kind of things?) Feel free to comment in line, thanks :)

Saludos Cordiales

David Arnold

David Arnold BA HSG / Analista
315 304 13 68/

devCO - empresa de consultoría de sistemas (en fundación)

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2014-08-27 1:02 GMT-05:00 Fakrudeen Abbaz <>:


I am really sorry and confused with your mail and loss the focus.

I was not ready to accept the concept Analytic before.  After consider many options I derived the conclusion that it's an a easy way to address simple and complicated production using analytic.

With minimal modification we can achieve this and analytic will be zero after the production.  It's acting like a temporary control account.

The best is even expenses for Production can be booked from journals or supplier invoice (cost of sub contract, Utility bills)

Actual material cost will book from stock transfer (consumption).
Overheads can be booked many  ways using Analytic.

I strongly recommend to think to use analytic in production.


On Aug 27, 2014 8:06 AM, "David Arnold" <> wrote:

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